China-Iran partnership poses dilemma
The big winners of the war in Iraq and the war on terror are Iran and China.
One unintended consequence has been the transformation of the Middle East security power structure from U.S.-led unipolarity of the 1990s into today's far more complex situation.
With so much American military, economic and political attention focused on Iraq and Afghanistan, the relative power of China and Iran has risen substantially in recent years. China's rise as the most important economic player in Iran has also been assisted by the trade embargo imposed by the United States in 1979.
China has made significant economic investment in Iran despite the brevity of the two countries' trading history. Iran has become an ideal construction and manufacturing site for state-owned Chinese companies.
For example, about 95 percent of Iran's motorcycles come off Chinese assembly lines in Iran, fruit of a joint venture with six motorcycle manufacturers in Chongqi. In 2008, China's behemoth manufacturer, Haier, produced more than 100,000 household appliances for Iran, nearly 35 percent of the market.
Other examples abound. China's Taian National Heavy-duty Truck Corporation's factory in Iran produces 35,000 heavy trucks a year. And the Chinese International Trust and Investment Corporation and China North Industries Corporation signed an $8.36 billion contract to build a subway in Tehran. By 2004, total trade surpassed $70 billion, more than 35 times the 1979 volume. In 2009, China invested more than $60 billion in 120 projects ranging from transportation to oil field development and telecommunications.
The vacuum left by the U.S.-led embargo has also allowed China to negotiate an array of arms and energy deals with Iran. China has become a key player in energy development in the region due to heavy investment in Iran. In 1993, China became a net importer of crude oil. In 2004, it replaced Japan as the world's second largest oil importer after the U.S.
Not coincidentally, in 1994, the Zhuhai Zhenrong Trading Company opened offices in Iran, becoming the world's largest purchaser of Iranian crude, accounting a decade later for 15 percent of China's crude imports. By early 2009, the figure was 25 percent.
Iran has thus become one of China's leading crude oil suppliers. Industrial projects including consumer production, infrastructure projects and engineering services pay for these imports. As a result, by 2007 China became Iran's top trading partner.
China is also interested in working with Iran to develop natural gas pipelines in exchange for rights to import large supplies of natural gas. And Iran has become China's largest labor export market, with more than 60 Chinese firms housed there, staffed by tens of thousands of workers. Soon, thousands of Chinese engineers will travel to Iran to take up new projects.
All of this leaves opinion in Washington divided. One school focuses on supposed benign effects of China's Iran investments. By tying Iran's economy to the global market, this linkage could promote reform in Iran by whetting its appetite for economic prosperity. Defying international demands for control of its nuclear development impedes progress toward economic success.
Another school, however, believes that the China connection will strengthen the Iranian regime by promoting bilateral trade independent of world markets and the constraints they impose for rule-conformity and rational state behavior.
Two problems result from Sino-Iran economic cooperation. First, it means that the Obama administration's threats to impose "crippling" international sanctions are far less likely to succeed. Although China remains disinclined to directly challenge America's longstanding military hegemony in the Gulf, Beijing is becoming more assertive about advancing its own economic and energy interests there and is unlikely to press Iran on the nuclear issue.
Second, China has its own Persian Gulf dilemma. Beijing realizes that a more open Iran could abandon Chinese partners once it can secure the services of more experienced and competent Western oil companies as well as unrestricted access to Western trade.
Sino-Iran economic cooperation signals the complication of the Middle East power situation, leading it away from U.S.-led unipolarity, especially in view of an emergent Russia with which China acts in tandem diplomatically. American influence will be diminished, diluted or divided by rival Chinese influence, a development not necessarily welcome in Washington.
Kate Xiao Zhou is a professor of international political economy at the University of Hawai'i. She wrote this commentary for The Advertiser.